Foreign Direct Investment and Development

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Introduction
Does Foreign Direct Investment (FDI) lead to development? This has been one of the central questions of discussions in most of academia. The involvement of FDI in developing economies is one of the signs of globalization. There have been a considerable amount of money transferred from developed to poorer countries. Foreign investment can be observed in form of capital inflow and technology transfer. This paper tries to explore the nature of FDI and then discuss its effect on the recipient country. FDI helps host country develop its economy through mainly three factors: technological spillovers, linkage effects and competition effects. Thus, some people believe that FDI is one of the important factors that is necessary for economic development. On the other hand, this paper discusses the importance of the host government in terms of adequate policies. In order to get the maximum benefit from the presence of Multinational Corporations (MNC’s), the host country should have a certain level of general public education and it has to open its market for foreign investors, eliminating discriminatory policies. These and other related factors help boost efficiency of FDI in the development of the host economy. The paper also brings South Korean development as a case study to show whether FDI has been necessary or not. Even though FDI has positive effects on the host economy, it is not crucial in the development of the host country with the governmental policies of the recipient state being the key factor that leads to development.
Nature of FDI
In order to have a better understanding of FDI and its effect on the economic growth of the host country, this paper provides a background information about the determinants and types o...

... middle of paper ...

...d be assessed in a specific way to understand the efficiency of foreign investment.

Works Cited

1. José De Gregorio, “The Role of Foreign Direct Investment and Natural Resources in Economic Development”, Central Bank of Chile Working Papers, No. 196, 2003, http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc196.pdf
2. Kjetil Bjorvatn, Hans Jarle Kind and Hildegunn Kyvik Nordås, “The Role of FDI in Economic Development”, Nordic Journal of Political Economy, Vol. 28, 2002, p. 109-126, http://www.nopecjournal.org/NOPEC_2002_a08.pdf
3. “Foreign Direct Investment for Development”, OECD PUBLICATIONS, No. 81839, 2002, http://www.oecd.org/investment/investmentfordevelopment/1959815.pdf
4. Laura Alfaro, “Foreign Direct Investment and Growth: Does the Sector Matter?”, Harvard Business School, April 2003, http://www.grips.ac.jp/teacher/oono/hp/docu01/paper14.pdf

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